New IRS Reporting Requirements for Foreign-Owned LLCs

Effective January 1, 2017, there are new IRS reporting requirements for LLCs formed in the U.S. by foreign persons. New and existing LLCs will have to:

- obtain an EIN.

- maintain adequate books and records available for inspection by the IRS upon demand.

- file Form 5472, if there have been any “reportable transactions” during the previous tax year.
- Because these changes become effective for entities’ tax years beginning on or after 1 January 2017, and ending on or after 13 December 2017 (meaning the earliest Forms 5472 required would be due in early 2018).
- The penalty for failure to file form 5472 on a timely basis is $10,000. If the form is submitted on time but is incomplete or inaccurate, it is considered to be late and subject to the $10,000 penalty.

The new regulations treat each foreign-owned disregarded LLC as a separate corporation for reporting purposes.

As defined by the IRS, “Reportable Transactions” are any exchange of money or property between the LLC and its foreign member, such as sale, assignment, lease, license, loan, advance, contribution, or other transfer of any interest in or a right to use any property or money, as well as the performance of any services for the benefit of, or on behalf of, another taxpayer, and includes any amounts paid or received in connection with the formation, dissolution, acquisition and disposition of the entity, including contributions to and distributions from the entity.

A "Disregarded Entity" is an entity that exists for legal purposes but not for income tax purposes. An LLC, formed under these laws of one of the states or the District of Columbia, which has not elected to be treated as a corporation, is automatically treated as a disregarded entity.